Noor Trends News, Technical Analysis, Educational Tools and Recommendations
The EUR/USD currency pair is facing a notable decline as the U.S. dollar strengthens following the release of preliminary University of Michigan survey data for May, which revealed a rise in U.S. consumer inflation expectations to 7.3% annually, up from 6.5% in April. This uptick bolstered the dollar, pushing the EUR/USD pair down to around 1.1150 during North American trading sessions. The development reflects market concerns over persistent inflationary pressures, reducing the likelihood of near-term interest rate cuts by the Federal Reserve. According to The Guardian.
Meanwhile, the euro is under increasing pressure as expectations grow for the European Central Bank (ECB) to cut interest rates again at its upcoming monetary policy meeting. These expectations are driven by investor confidence that Eurozone inflation is on track to return to the ECB’s 2% target this year, coupled with a gloomy economic outlook due to global uncertainties. An ECB Governing Council member suggested the possibility of a “couple” of additional cuts to the current 2.25% deposit rate this year, though cautioned against rushing decisions, advocating a “meeting-by-meeting” approach amid global trade uncertainties.
On the economic front, recent Eurozone data adds complexity to the picture. First-quarter GDP growth was revised downward to 0.3%, compared to a preliminary estimate of 0.4%, indicating slower economic expansion. However, employment change held strong, rising by 0.3% quarter-on-quarter, surpassing both flash estimates and the previous reading of 0.1%. These mixed signals highlight the challenges facing the Eurozone, reinforcing the ECB’s cautious stance.
In the U.S., the Consumer Sentiment Index (CSI) unexpectedly fell to 50.8 from 52.2 in April, marking its lowest level since June 2022 and falling short of economists’ expectations of 53.4. This marks the fifth consecutive decline in sentiment, signaling growing consumer unease. The combination of rising inflation expectations and declining sentiment strengthens the case for the Federal Reserve to maintain its current interest rate range of 4.25%-4.50%, with market tools indicating a 91.8% probability for June and 65.1% for July.
The interplay of these factors underscores the delicate balance central banks must strike. While the ECB leans toward further rate cuts to stimulate growth, the Federal Reserve faces pressure to hold rates steady to combat inflation. As global trade tensions persist, including recent agreements to lower tariffs between Washington and Beijing, the EUR/USD pair remains vulnerable to shifts in monetary policy expectations and economic data releases. The coming weeks will be critical in determining whether these pressures reshape currency markets or reinforce existing trends.
